Selling your hotel requires meticulous planning and resource allocation, whether as a corporate transaction or a straightforward asset sale. Preparation is paramount, and overlooking this crucial step can lead to significant delays or complete collapse, resulting in disappointment for all involved.
Prioritizing careful consideration of legal, financial and tax implications is essential when structuring a hotel deal, whether opting for a share sale or asset sale.
Hotel valuers frequently adopt a ‘stand back and look’ approach to gauge whether the valuation aligns with what the market would actually pay for the hotel. Before hitting the market, it is crucial to adopt a vendor's perspective and fully understand the relationship between the hotel’s asset and its operations.
To ensure a smooth sales process, Horwath HTL recommends focusing on four pivotal areas: preparation, deal structure, negotiation and execution.
Preparation
A vendor should undertake due diligence relating to the property and business in advance of sale.
- Financial documentation: Collect financial records: profit and loss statements, tax returns, occupancy rates, debt, and other liabilities. If considering a property sale, establish if you are required to charge VAT and if there is any potential VAT clawback. In the case of a company sale, the purchaser may require a full VAT history of the underlying property.
- Other documentation: Organize property documents including planning permissions, licenses, title deeds and maintenance records. While a virtual data room facilitates efficient documentation collation and sharing, ensure availability of hard copies for the sale’s execution.
- Legal compliance: Verify adherence with all planning and building regulations. Legal due diligence involves comprehensive review of all contracts, including brand rights, licenses, leases, employment, customers, suppliers, and any ongoing or potential litigation. Reviewing these prior to market launch accelerates the sale process.
- Valuation: Obtain a professional valuation to ascertain the hotel's fair market value. Conduct thorough research to understand relevant tourism trends, demand dynamics and competitive landscape within your market, and wider economic considerations that can impact and influence target buyers.
- Capex: How much money has been spent on the hotel over the last number of years and what is required moving forward? If large investment is required, it will affect the purchase price.
Deal Structure
A potential purchaser will consider whether to purchase the asset or the company. There are several considerations here—legal, financial, tax and operational.
- Structure: What is the proposed corporate structure? Is there a PropCo (property company),OpCo (operating company), or both?
- Taxation: Factors which may be relevant include capital gains tax, tax losses carried forward, deferred taxes and interest deductibility.
- Risk: Buying shares in an existing company involves legacy risk and liabilities. You will also need to consider Transfer of Undertakings (Protection of Employment) Regulations (TUPE), any specific tax reliefs (such as entrepreneurial relief or retirement relief) and whether you can avoid crystalizing losses.
- Off-market: As hotels are a trading asset, an off-market transaction is often the best sales route. A public sales process could damage confidence and have a negative impact on business and resourcing.
Negotiation
- Before agreeing on a strike price, it is worth adopting a collaborative approach to negotiation. Consider the buyer’s preferences, financing capabilities and strategic objectives. Creative deal structures such as sale-leaseback arrangements, joint ventures or phased transactions can maximize value and meet both parties' objectives.
- Engaging experts including real estate agents, legal advisors and financial consultants can guide complex negotiations while ensuring impartiality and distance between parties, safeguarding equity in your hotel and pre-empting last-minute ‘price chip’ demands from the buyer.
Execution
- As completion approaches, the execution risk may increase, making this phase of the sales process the most challenging. Even with an agreed price and timeline, delays can arise and snowball. Sellers must maintain vigilance, ensuring both sides are aligned on timelines and the completion date.
- Appointing an advocate or strategic advisor can expedite sales processes to completion and can maximize the sale value and attract potential buyers willing to pay a premium for the property.
Weldon Mather is a director with Horwath HTL in Ireland, a division of Crowe Ireland.
This article was originally published in the May edition of Hotel Management magazine. Subscribe here.